As I understand it, land value and improvements are already taxed but a land value tax would only tax land value.
Can someone make this make sense? Why would this promote development?
+-------------+------------+-------------+-------------+
| Type | Land Value | Cover Value | Total Value |
+-------------+------------+-------------+-------------+
| Parking Lot | 100 | 0 | 100 |
| Dump | 100 | -20 | 80 |
| Skyscrapper | 100 | 100 | 200 |
+-------------+------------+-------------+-------------+
+-------------+------------+-------------+-------------+
| Type | Land Value | Cover Value | Total Value |
+-------------+------------+-------------+-------------+
| Parking Lot | 150 | 0 | 150 |
| Dump | 150 | -20 | 130 |
| Skyscrapper | 150 | 100 | 250 |
+-------------+------------+-------------+-------------+
If you have an undeveloped piece of land worth X, and it becomes worth Y if you put a skyscraper on it, then you do it as long as the cost of construction is less than Y-X.
Sure, you can make money by doing nothing, if the price of land is going up. But you can make that money plus the money you make by building the skyscraper by, you know, building the skyscraper.
If you're not willing to do that because of the increased taxes on the skyscraper, then either you're refusing dollars to avoid spending a dime, or the tax regime in your city is really out of control.
So I'm not buying your argument here at all. Developers develop because they make money doing it. The absence of a land-value tax isn't what stops them.
Not all property is owned by developers. I would go even further and say that most properties are owned by non-developers.
Some people use land as store of value. We as a society would be better off if they used, e.g. gold instead.
This is the rent seeking behavior that a Land Value Tax seeks to eliminate. By taxing the unimproved value of land, it becomes more and more burdensome to sit and do nothing with your property. By making improvements (building a high rise, running a productive farm, etc.) you reduce your tax burden and, as you mentioned, profit from the improvements.
So a more productive and efficient land use is encouraged by land value tax compared to property taxes which since they are based on total value (including improvements) you could potentially be punished for being more productive than just doing nothing.
In other words, the taxable value of the land is what it would be if it had similar improvements to surrounding lands, rather than taxing it based on actual improvements.
I would say the biggest component of a luxury apartment is the layout. A huge open space is amazing if you want to throw large parties, and can easily use up as much space as 3 studio flats. But the one huge luxury apartment will never realistically degrade into 3 studio flats.
If you're being taxed on hypothetical improvements and not just the value of the land, why is it called a Land Value Tax, rather than a Hypothetical Best Use Tax? People assume the name means what it says and get confused.
> A land value tax (LVT) is a levy on the value of land without regard to buildings, personal property and other improvements upon it.
In my mind, the value of the land without regard to buildings, etc, is what you would pay for an empty lot. But you said the value is what you would pay for the lot with improvements. Theoretically, real estate property taxes I've paid have been divided into the land value and the improvements value (although it's mostly conjecture; the total value is all that matters and that generally approximates market value of the lot with the improvements, at least in CA and WA, where I've paid property taxes; although CA has Prop 13 that distorts assessments over time). Washington even states the land portion is assessed based on the best use, not the current use, unless it's in some special categories like farm, forestry, and open space.
Now I'm even more confused. Which speaks to the GP's confusion.
> I have yet to understand why people have made land value tax a thing.
If the whole concept is so confusing, starting with the name, it's no wonder advocacy isn't effective.
LVT was named (I presume) by the advocates of it. If their name is misleading, don't blame the people reading it who are getting confused.
;-), but a serious point: You don't actually live that way. Nobody does.
Most areas can support a skyscraper, but it doesn't really make sense to build one in the middle of nowhere. Conversely it doesn't make sense to keep prime real estate next to shops & public transit a surface parking lot. LVT incentivizes developing the parcels that are in good locations into high-density, high-value uses. A traditional improvement-based property tax reverses those incentives: if you develop your parking lot into a skyscraper, you pay much more in taxes, which may be unaffordable for smaller non-corporate owners, which gives them an incentive to hold onto them and keep them as marginal low-productivity uses.
If you implement a land value tax, as I understand it, the parking lot and the skyscraper next to it should be taxed the same if they have the same footprint. All things being equal, that means a very large tax burden for the parking lot owner, and that certainly is an incentive to transfer it to someone who will do something with it, which is what you're advocating for.
But at the same time, it makes the price you can get for the parking lot much lower. And I'm having a hard time not equating sales price and value. And once I've seen that under a LVT, the parking lot has no or little value, because it can't be sold for much money, it's more confusing --- if the value is low, and the tax rate is based on value, why are the taxes so high?
Lower than what? The price it would have had without a tax? Sure, but the same applies to the lot with the skyscraper. Increased land taxes will push down land prices, whether it's a land value tax or not. That doesn't seem like a fundamental issue with the idea.
> And once I've seen that under a LVT, the parking lot has no or little value, because it can't be sold for much money
Why can't it?
It's always possible to set taxes so high on an item that it's worthless, but I don't think that's inherently part of the LVT proposition.
I think that's reasonable.
If LVT doesn't replace property tax, well we already have land value as a component of property tax; I'm assessed for land value and improvements value.
If property tax on a skyscraper isn't very high, then the whole discussion is kind of moot.
Yes I agree it will make the property taxes go up.
But the decrease in price specifically because of increased taxes is not a problem, at least if we assume they don't go up so much that the price becomes almost zero. And when talking about whether LVT is viable in theory, we should go ahead and assume it.
Terry buys a house in a run down, blighted, poor/cheap neighborhood, and along with other neighbors, starts to revitalize it. 15 years later, the formerly blighted neighborhood has become hip, due to the work and care Terry and others put in to it. Property prices increase as rich people want to move to the cool neighborhood, and now Terry has a hard time affording the taxes, and is forced to sell and essentially evicted from the neighborhood he helped build, because a rich person would rather live there.
Also, Terry isn't forced to sell to a rich person. He is a rich person. The type of people who like to live in hip neighborhoods tends to be recent graduates starting their high paying career. While they may have more income than Terry, Terry is significantly wealthier than most of them. If he really wants to stay on there, he can easily pay off any property/land taxes with the equity of his home.
As I understand it though, you wouldn't want these programs with a LVT system, because they would just distort the market in a similar manner that it is now?
Yes, because of the property appreciation, Terry can say that on paper, he is rich-ish, but a weird kind of rich where he has nothing but a house in a nice neighborhood, and otherwise has very little money.
How does he pay off the taxes with the equity of his home? A HELOC could work, but he already can't afford the increased taxes with his income alone, so a HELOC would just delay the inevitable and based on his income he probably wouldn't qualify for one.
Or he could do a reverse mortgage, be able to pay the taxes, but put himself at a major risk of losing his home entirely if he lives long enough. Also, reverse mortgages are only available to people over 62.
Also, it does have possible downsides compared to today, like your single family home might not be there in a hundred or fifty years when the area needs more density. That’s okay to me, I think humans need to understand land use changes over time and you’re not always going to have a big family home last hundred of years under more reasonable land use laws.
LVT is very close in structure to this perfect tax. There is a finite amount of land available, and no way to make more of it; taxes on land don't disincentivize land production, they just take a cut of the rent that you get from having conquered that land first or bought it from someone who did. And the land value (exclusive of improvements) is usually set by its location - what else is nearby, what community improvements have been made, is it in a pretty place, is there lots of pollution or crime? These too are things that the owner has no control of; arguably they are reaping the benefits of things that the rest of the community has built, and so they should be taxed on it so the fruits of those labor go back to the community.
By excluding the improvements, you let the land owner capture the fruits of their actual labor. So if they build a new apartment building and provide housing to those who need it, they can charge rent, and they won't be taxed on that rent, and so they capture the full benefit of those improvements. If it's a nice apartment building, they get to charge more in rent, and they can capture that money too.
I just tried it out and ChatGPT helps if you want to understand this. It is quite patient and will provide instant responses.
Even though it wouldn't be worth as much without LVT, it would still be worth a lot in such an extreme case, so it's not devastating for the owner either.
So you move all tax to just the land value at a higher rate than present, then let people build to offset the tax.